Help to Buy Guide 2018
Help to Buy schemes are set up by Government and are designed to help potential buyers struggling to save for an initial deposit for their first home or for those trying to move up the property ladder if they have little equity.
Our guide explains the different schemes available.
What’s in the guide?
• What is ‘Help to buy’
• Who is eligible for the schemes
• Shared ownership options
• The restrictions on the scheme
• Fees and charges involved in the mortgage process
What is 'Help to Buy'
There are two main options in the Help to Buy scheme - Equity loan and Mortgage guarantee.
The Equity Loan scheme is where the government loans the property buyer up to 20% of the cost of a new-build home, so that with a 5% deposit, they will only need a 75% mortgage to secure the rest of the property. For example, if you purchased a home for £200,000:
- You would take out a mortgage for 75% - £150,000
- You would pay a 5% cash deposit - £10,000
- The Government would provide an equity loan for the remaining 20% - £40,000
The equity loan given by the government is interest-free for the first 5 years and after that time the property owner will pay a fee of 1.75% per year, rising annually along with the Retail Price Index (if any) plus 1%. From 1st February 2016 for new home buyers in Greater London, the Government has increased the upper limit for the equity loan it gives from 20% to 40%.
Who is eligible?
This scheme is eligible for both first time buyers and existing home owners looking to move into a new build house. You can purchase a property up to a maximum value of £600,000. You must not own any other property and the mortgage you take out must be a repayment mortgage, not interest-only. The scheme is set to run until 2021.
The Mortgage Guarantee scheme is where the government promises the lender that if the mortgage was not to be repaid, they will recover part of the losses if the house has to be repossessed.
The government will take responsibility for 15% of the property value, however, you will still be completely responsible for the mortgage repayments each month, and you will need to take out the full amount of the mortgage (i.e. if you have 5% deposit, then a 95% mortgage value).
Who is eligible?
This scheme is eligible for both first time buyers and existing home owners, on new or old properties below the £600,000 threshold. You are eligible if you do not own any other property, and the mortgage you take out is a repayment mortgage, not interest-only.
The Help to Buy: mortgage guarantee scheme will run until 31 December 2016.
Help to Buy: ISA
In December 2015 the government launched a ‘Help to Buy: ISA (Individual Savings Account)’ to help first time buyers save for a deposit. Putting your money into the ISA allows the government to boost your savings by 25%, with a capped contribution at £3000 (i.e. you save £12,000 and they will top it up with £3,000 to give a total of £15,000).
The ISA allows you to save up to £200 a month, as well being able to deposit a lump sum of up to £1,200 in your first month.
The Help to Buy ISA is available for new savers until 30th November 2019, however you can still keep saving in your account if you opened it before then. You must, however, claim your bonus by the 1st December 2030.
Who is eligible?
To qualify for this ISA, you need to be:
- Over the age of 16
- Have a National Insurance number
- Be a UK resident
- A first time buyer
- Not have another active cash ISA for the same tax year
The property that you invest in must be based in the UK, cost up to £250,000 and must be purchased with a mortgage.
You can use this scheme alongside other schemes including the Equity Loan and Mortgage Guarantee.
Shared Ownership schemes allow buyers to get onto the property ladder by offering them options to purchase a percentage of a house whilst renting the remaining percentage. The scheme usually offers a purchase option of between 25 – 75% of the property to begin with, with options to purchase more in the future (known as ‘staircasing’).
It’s best to bear in mind that each country in the UK has its own Shared Ownership scheme, and each are run a little differently from each other.
Remember that for Shared Ownership schemes, although you own only a share of the property you still have to pay all of the maintenance costs.
Who is eligible?
You are eligible to purchase a home through Help to Buy: Shared Ownership in England if your household earns £80,000 a year or less outside London (£90,000 a year or less in London), if you are a first-time buyer, you used to own a home but can’t afford to buy one now or are an existing shared owner looking to move.
If you are aged over 55, you will be able to access help from ‘Older People’s Shared Ownership’ scheme. This is similar to the regular Shared Ownership scheme, but it only lets you buy 75% of the property. Once you own that 75%, you won’t have to pay rent on the remaining 25% of the property.
Are there any restrictions?
The Help to Buy schemes were not set up for people to buy second homes with, or to purchase properties that you intend to rent out (i.e. Buy to Let). They also cannot be used for anyone who is already using, or going to be using another home buying scheme. However, you can use the Help to Buy: ISA alongside the Equity Loan OR Mortgage Guarantee schemes.
What are the risks for Contractors and Independent professionals?
For many, new home builders that offer properties under the ‘Help to Buy’ scheme try to persuade buyers to use their own approved brokers, rather than seeking specialist advice. However, this route can be disastrous for contractors, business owners and independent professionals seeking a mortgage. A non-specialist mortgage broker may have doubts about your ability to borrow sufficient funds to proceed with the sale. As a result of this, the your affordability will be assessed via trading accounts or payslips, and a large portion of their income could be ignored.
Fees and charges
Before deciding if a Help to Buy scheme is for you, you will also need to make sure you are able to afford all the costs of home ownership. These include but aren’t limited to:
- Mortgage fees
- Moving costs
- Stamp duty – paid on properties priced over £125,000 Insurance
- Maintenance costs
All information correct at time of writing and sourced from official government Help to Buy website: https://www.helptobuy.gov.uk/
Please note, expressions made do not constitute advice and it is the responsibility of the reader to seek advice for their independent needs.
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